Even though more womxn are working and earning higher salaries than ever before and breaking glass ceilings all over the damn place, we’re still behind when it comes to retirement and investing—yet we live longer than men do. So what gives?
Well, a lot of the womxn I know in my life feel like they have time to wait, they can invest later when they have more available cash, after they save for a wedding, or after they pay off student loans or credit card debt. Or it’s just not that important right now. Even worse is my biggest pet peeve: that they can rely on their spouse’s 401(k). In other words, they’re contributing to their spouse’s retirement for THEIR future. Well, I’m here to tell you that in most cases, you’re wrong.
You need to be investing what you can, right now. Not only for your future self, but for your present self. So you can change things in the world, literally put your money where you mouth is (or values are), and invest in ESG or SRI stocks (aka, socially, environmentally, and ethically conscious investments). Plus, if you walk away from a marriage or a relationship, you need to have your own damn money to fall back on. Yes, you can have a healthy relationship while still prioritizing your own financial well-being.
And if you’re over there thinking you’ve got it all figured out because you have a good chunk of money in a savings account, kudos. Money in savings is a GREAT first step, but even in the highest interest savings account you can find, your money is still worth less with each passing year. The only way to combat that decreased buying power is by investing that money in something that beats the rate of inflation (which has been an average of 3.22%/year).
First, I’m going to define a few important terms I’m going to use throughout this article:
Compound Interest/Compounding Returns: Interest/returns paid on both the principal balance and on accrued interest/gains.
Retirement Accounts (SEP IRA, Roth IRA, 403b, 401k, Traditional IRA, etc): A plan for setting aside money to be spent after retirement. For the purposes of this article, the retirement accounts I refer to are all qualified retirement accounts per the IRS. Some of them help you pay less in taxes now (SEP/Traditional IRA 401k), and some help you pay less in taxes later (ROTH). For these accounts, you can’t take your money out without incurring a 10% penalty before the age of 59 ½. This is to incentivize you to keep your money in here, and not touch it until you’re actually retired (and also why I recommend also having savings accounts and non-retirement investment accounts).
Investment/Investment Account: A type of account that is post-tax, doesn’t have any long-term retirement benefits, but money can be withdrawn at any time, regardless of your age.
Inflation: A general increase in prices and fall in the purchasing value of money.
Why You Need To Invest
We’re going to talk about compound interest here for a minute. One of my strongest beliefs is that you should get retirement and investment accounts set up first, followed by a savings account. That’s because your retirement and investment accounts will generally give you an 8% average return over a 10-year period.
Now we’re going to do some math (I know, but trust me, it’s important).
If you’re 25 and invested $5,000 now, contributed $100/month to retirement for the next 40 years, and retired at 65, you’d have somewhere around $470,467.71. If you waited until you were 30, invested $5,000 and contributed $100/month for 35 years and retired at 35, you’d have $310,851.00. That’s a difference of almost $160,000, and the amount invested only decreased by $6,000 (5 years of $100/month).
Even crazier, if you’re 20 and invested $5,000, contributed $100/month for 45 years, and retired at 65, you’d have around $708,271.99!!
So when I tell you that compound interest is important and that investing something now is better than investing a larger amount in a few years, trust me on it.
How To Invest
Invest in yourself and your future right now, even if it’s only five dollars a month. Something is better than nothing, and like I talked about above, compound interest is your friend when it comes to taking care of your future self.
If you have a retirement plan offered through a job, you can start now by:
Opening a retirement (or multiple) accounts (if you don’t have access to one through a job).
If you have one through your work, you want to contribute to both a ROTH and regular option. ROTH contributions help future you with taxes, and regular/traditional pre-tax options help you with taxes.
If you’re self-employed or don’t have a retirement plan offered through a job, you can start now by:
Opening two types of retirement accounts: a ROTH and a Traditional IRA (or a SEP IRA if you’re self-employed).
You want to open and contribute to both types of accounts because post-tax ROTH contributions help future you with taxes, and regular/traditional pre-tax contributions help you now when it comes to taxes.
Whether you have a retirement plan offered through your employer or not, I recommend splitting your pre- and post-tax contributions 50/50, so if you can set aside $50/month for now, I’d send $25 to a ROTH and $25 to a Traditional account. I also recommend opening an investment account, then a savings account. I like Ellevest and Betterment.
That’s it. Your step-by-step guide to starting investing today (in like 15 minutes). You’re worth it, and the world needs more womxn investing and taking control of their financial future.
Images: Startup Stock Photos / Pexels
Adulting is hard af. You don’t have someone to make your lunch for you every day or clean up the house. You need to take out the trash yourself, and don’t get me started on paying the bills. In 2019, the state of our personal finances has drastically changed from when our parents were young. Sometimes for the worst, but sometimes for the better. Alexa von Tobel, the founder of Inspired Capital and New York Times bestselling author, sums up the six biggest financial trends in her new book, Financially Forward: How To Use Today’s Digital Tools To Earn More, Save Better, and Spend Smarter, out now. She lays out where we’re losing money (oy vey) and how we can save more (thank the lord). Her book is a much-needed reality check, and can teach you how to not be broke by the time you reach 50. (And it isn’t just about cutting back on the drinking. I hope.) Here are the top six finance trends and advice outlined in von Tobel’s book, and how you can use those trends to your advantage.
Trend #1: We’re Living Longer
Shop Betches But How Do You Save $ Tank
It’s no shocker that we are living longer than 50 years ago. Science (and my killer wrinkle-reducing night cream) tends to do that. While only 12% of the population was over 65 in 2000, it is estimated that 20% of Americans will be 65 or older by 2050. She says, “the majority of us underestimate the average life expectancy. This may sound like no big deal, but underestimating how long you might live can also mean underestimating how much money you’ll need to live comfortably after you retire.” So while you may think investing in those designer shoes is fine now, think about when you’re 75 and homeless. At least you’ll have cute shoes, right?
Living longer also means that we’re retiring later. The average life expectancy for an American woman is 81.1. So while some people retire at 65, a study by Northwestern Mutual found that 38% of people wait until they are in their 70s. Additionally, von Tobel says that “the idea of a completely work-free retirement is a bit of a myth for today’s retirees.” Just think of those cute old people working as greeters at Walmart.
Advice: Build your financial plan with the assumption that you will live well past 65. Alexa recommends assuming you’ll live to 95. But if your family members have lived to be over 100, assume you will too and plan accordingly. Also, consider the idea of working part-time once you retire.
Trend #2: Family Structures Are V Different
Our families are no longer the 1950s sitcom version of the average American family: husband and wife. picket fence, 2.5 kids (WTF is 2.5 kids?). But how are our families changing? For starters, we are getting married later. In the 90s, women and men would get married, on average, at 24 and 26, respectively. Although my great aunt never fails to remind me that she had already had four kids at my age, Americans are now waiting until their late 20s to get married. Similarly, “DINK” Status is very much a thing (dual-income, no kids) since people are shacking up before getting hitched. According to the Bureau of Labor Statistics, “combining your finances with a second earner leads to more money in the bank.” Well, no duh. The thing is, not only do you have more money in the bank, but you tend to save money as well (just under $7,000 a year). Anyone down to move in with me and we can split the savings?
But on the costlier side of our changing family structures, there is the cost of raising children. In 2015, the cost of raising a child from birth to 17 (not including college), was about $233,000. That doesn’t even factor in if you need costly treatments to help you get pregnant. For IVF, costs have sky-rocketed from 10 years ago, increasing by $3,600 for one round of treatment, according to Jake Anderson-Bialis, co-founder of FertilityIQ. That means a single round of treatment usually costs more than $10,000. However, most people do two or three treatments, which drastically increases the price. Finally, there is the concept of the “Sandwich Generation,” aka you might end up living with or financing your kids and your parents at the same time. Joy.
Advice: Speak openly with your family about costs. Before your parents are too far down the rabbit hole (sorry), discuss what savings they have for long-term care. Make sure to keep all these different family-related costs in mind when you’re figuring out savings. The best rule of thumb is always to plan ahead.
Trend #3: Our Earning Potential Is Flexible
Have you ever gotten an urgent message from your boss late at night to do something before the next morning? Or gotten a call to come into work early? Hate to break it to you, but this is the new normal. The majority of jobs are no longer a basic 9-5. And for many people, holding one job just doesn’t cut it anymore. 40% of independent workers have a side hustle to make some extra cash for savings or for a big purchase, like a house. Others (16%) do it out of necessity. Then there are the “free agents” like freelancers or Uber drivers. 30% are in this field because they like the flexibility, while others want a full-time job but are using this as their primary income at the moment.
Advice: Use side hustles to your advantage. Figure out what you want and use the flexibility of part-time work to reach your goals easier and quicker.
Trend #4: Our Career Paths Are Fluid, And Sabbaticals Are In
What’s great about our generation is that we are indecisive have the flexibility to change career paths if we are unhappy or want different opportunities. On average, those who graduated college from 2006 to 2010 have held twice as many jobs as people who graduated between 1986 and 1990 did in the same amount of time. But people aren’t just changing companies, they are also changing entire career paths. According to von Tobel, there is “no such thing as it being ‘too late’ to pursue an entirely new path.”
Like those adorable matching sets every girl on Instagram wears during the summer, sabbaticals are in. Think of it as an “adult gap year”. It’s all about increasing your learning, and whatever other BS your university guidance counselor told you about your year abroad. But while taking an extended vacation may seem like the best thing ever a load of crap, employers are getting on board. Hear me out. Over a three-year period, those who took more than 10 vacation days were 31% more likely to get a bonus or raise compared to those who took fewer than 10 days off.
Advice: If you’re deciding on whether to take a job, check out the company’s policy with regards to taking time off work. You should also plan ahead with your finances if you’re able to. If you can, allow yourself the funds to take that time off work.
Trend #5: Everything Is On-Demand
Our lives today are all about instant gratification. I’m not going to lie that I don’t get annoyed when my Uber takes longer than 5 minutes to arrive or my Amazon Prime package doesn’t come the next day. Patience is non-existence. While 22% of people shopped online in 2000, 80% shop online today. Crazy. Since nothing is off-limits, there is tons of competition, which keeps the prices (fairly) low. The best part of having everything accessible to us? Saving money. As someone who loves a good deal, being able to compare prices of the same product at different stores is the best feeling. Like, sex is cool, but saving $50 is better.
Advice: von Tobel says that while this is great, impulse shopping is dangerous. So beware.
Trend #6: Forget Ownership. Sharing is Caring
If I told my mom that I was staying in a stranger’s house when I traveled Europe last year, or regularly get into randos’ cars, she would have a heart attack. But today, Airbnb and Uber are the new normal. These services allow us to save money by sharing stuff and make money by letting others borrow it. And who needs a car in a busy city when you basically have your own chauffeur? These services allow us to cut down on what we have (Marie Kondo is so in and von Tobel approved) and save $$$. You also can stream movies and show online, instead of buying DVDs (or VHSs … yikes) and even borrow clothes instead of buying a dress you’ll wear once.
Advice: Keep on sharing!
For more of Alexa’s financial advice, pick up a copy of Financially Forward: How To Use Today’s Digital Tools To Earn More, Save Better, and Spend Smarter, out now.
Images; Giphy (5)